Are You Liable for Credit Card Debt In A Business Bankruptcy?
When a Limited Liability Company (LLC) files Chapter 7 bankruptcy generally speaking the owners of the company are not held personally liable for debts held by the company. An LLC, like a corporation is considered a separate business entity from the owners.
But there are some scenarios where owners of an LLC could be held personally liable for debt:
- If an owner personally guaranteed the business debt, they could be held personally liable for the payment of that debt in Chapter 7 bankruptcy. A limited liability company will not protect an owner who has personally guaranteed the debt of the company. This is why it’s important for owners to carefully review debt agreements to make sure that they are not guaranteeing the debt if they want to keep their business and personal finances separate.
- There are some debts for which that state and federal laws require that owners of LLCs or corporations take responsibility. For example, if an owner of an LLC fails to pay employment taxes they will still be held personally responsible for those unpaid taxes even if they file a business bankruptcy.
- If an owner has failed to keep their business and personal finances separate, even if they have an LLC they could still be held liable for debts associated with the business in a bankruptcy.
If an owner of an LLC finds that he/she is being held personally liable for business credit card debt even after they file a business bankruptcy, they may want to also consider filing a personal bankruptcy.